Mr. O’Malley, a Democrat, submitted a $14.4 billion operating budget for fiscal 2010, which is 1.3 percent less than the 2009 budget.

“This budget is by necessity very, very lean, because of the challenges of these times — the contraction of the national economy, indeed, the global economy,” he said.

If the General Assembly approves the budget, the 700 layoffs would save about $30 million. Maryland has about 80,000 state employees, who will not be getting salary increases under the budget plan.

Mr. O’Malley’s budget proposal is working on the assumption Maryland will receive $350 million in federal stimulus money to support Medicaid spending, and the governor pointed out that the state could end up receiving more.

The governor decided to hold off on implementing the second phase of an expansion of Medicaid to poor adults who don’t have children, a plan approved in the 2007 special session. But he is expanding the first phase of the plan for poor parents with children at a cost of about $60 million. Medicaid funding will total $5.7 billion in Maryland.

Mr. O’Malley included $22 million to freeze tuition at Maryland’s public colleges and universities for the fourth straight year — a move that will keep higher-education costs down through July 20, 2010, an election year, if the Democrat-controlled Assembly approves.

Mr. O’Malley is increasing spending in some areas, mostly for education, including $260 million in new school construction money.

The governor avoided shifting some expense for teacher pensions to the counties, a perennial debate in the General Assembly that has been getting increased attention because of the state’s budget problems.

“That should be in there, but it’s not,” said Senate President Thomas V. Mike Miller Jr., Southern Maryland Democrat.

The administration decided to cut a fund set aside to clean up the Chesapeake Bay, drawing it down $6.5 million to leave about $25 million.

Mr. O’Malley decided to use a $366 million reserve account in the comptroller’s office that was created to ensure money would be available for local tax refunds. It hasn’t been needed, and plans call for paying the money back over 10 years.

The budget plan also will use about $255 million from the state’s Rainy Day Fund, keeping about $687 million on hand. About $45 million will be used for the 2009 shortfall, and $210 million will go toward the fiscal 2010 budget.

The budget plan will leave a balance of about $46 million to help offset any more revenue write-downs, if the economy continues to falter.

Maryland is facing future budget deficits of $600 million to $713 million in coming years.

In addition to addressing the $2 billion budget gap, Mr. O’Malley also outlined plans to make up nearly $400 million in fiscal 2009. That includes $34.4 million saved by state government employee furloughs and spending reductions that will be made by the state’s Board of Public Works, which consists of Mr. O’Malley, Comptroller Peter Franchot and Treasurer Nancy K. Kopp.

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